Nitubara: Kellogg 3rd-quarter net income falls; outlook cut

In this Nov. 2, 2011 photo, Kellogg cereal brands line the shelves of a Bethel Park, Pa., super market. Kellogg Co. says its third-quarter net income fell 14 percent, worse than expected, hurt by higher costs related to updating its supply chain and reinstating incentive compensation costs.(AP Photo/Gene J. Puskar)

BATTLE CREEK, Mich. (AP) ? Cereal and snack maker Kellogg Co. said Wednesday its third-quarter net income fell 14 percent, worse than expected, hurt by higher costs related to updating its supply chain and incentive compensation costs.

The world's largest cereal maker also lowered its earnings guidance below expectations. Company shares fell 7 percent in premarket trading.

Kellogg and other food makers have raised prices to offset soaring costs for ingredients and fuel, trying to find the tricky balance between how much prices can increase before consumers forgo brand-name loyalty and opt for low-priced rivals. When Kellogg competitor General Mills reported earnings last month, it said price increases, which climbed almost 5 percent during the quarter, helped results.

Kellogg, the maker of Frosted Flakes, Keebler cookies and Eggo waffles, said net income fell to $290 million, or 80 cents per share, in the three months ended Oct. 1. That compares with $338 million, or 90 cents per share, last year. Analysts expected 89 cents per share, according to a poll by FactSet.

Money spent to improve Kellogg's supply chain hurt net income by about 8 percentage points, while incentive compensation costs hurt results by 12 percentage points, Battle Creek, Mich.-based Kellogg said.

The supply chain improvements will take several years and "improve the infrastructure and drive reliability and capability" of Kellogg, said CEO John Bryant.

Revenue rose 5 percent to $3.31 billion, from $3.16 billion last year. Analysts expected $3.41 billion.

In North America revenue rose 4 percent to $2.2 billion. Sales of cereal were flat, which the company blamed on fluctuation in trade inventory. Snack sales rose 3 percent on demand for crackers and cookies. Frozen food sales were also strong.

Internationally, revenue rose 7 percent to $1.1 billion, boosted by the weaker dollar. Results in Latin America were strong and Europe continued to improve.

Kellogg said it continues to expect revenue will grow 4 percent to 5 percent in 2011, but it lowered its net income guidance because of continued investment in its supply chain. It now expects net income of $3.35 to $3.41 per share, from prior guidance of $3.42 and $3.49 per share. Analysts expect $3.48 per share.

In 2012 the company also expects revenue to rise 4 percent to 5 percent with net income, excluding currency fluctuation, up 2 percent to 4 percent.

Shares fell $3.79, or 7 percent, to $50.25 during midday trading. The stock had been up 6 percent since the beginning of the year.

Associated Press

Source: http://hosted2.ap.org/APDEFAULT/f70471f764144b2fab526d39972d37b3/Article_2011-11-03-Earns-Kellogg/id-3de0ced824cf451fba57662501b36f14

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